Budget deficit to rise to 5.5% of GDP from 5%; plans for fiscal fiscal consolidation on track
Jordan has revised its 2011 budget to cover a new package of social aid that will push up its deficit slightly although savings will keep its fiscal consolidation plan on track, the finance minister said on Sunday.
Mohammad Abu Hammour told Reuters a $650m package approved last month following protests over food prices across the Middle East would push the 2011 budget deficit estimate to $1.6bn or 5.5 percent of gross domestic product (GDP) against an earlier 5 percent target.
But overall state spending would rise by just 130 million dinars to 6.3 billion dinars ($8.98bn) in a newly revised budget due to substantial cuts in capital spending and projections of higher foreign aid and revenues, Abu Hammour added.
"The cuts in capital spending and the continued control on state spending on non-essential items and higher aid will offset most of the costs of the social safety net," Abu Hammour said.
Food price protests that have swept across North Africa and the Middle East reached Jordan last month. This pushed the authorities to introduce a generous social safety net to mitigate the impact of food inflation that many blame for the erosion of standards of lower and middle class Jordanians.
Last year, Jordan succeeded in cutting a record $2bn budget deficit in 2009 -- 9 percent of GDP -- as public finances came under strain after the global downturn, to around 5.3 percent of GDP with some of the toughest spending cuts in years.
Abu Hammour said new substantial capital spending cuts in the revised budget amounted to 220 million dinars alone.
Extra foreign aid of 140 million dinars would push aid from major Western and Arab donors to 440 million dinars this year.
"We have made every effort to consolidate our sustainable fiscal stability and to ensure that the cost of this package does not worsen our fiscal deficit," Abu Hammour said.
"Even with this slight rise in our forecast deficit, compared to other countries we are still very much in the comfort zone," Abu Hammour added.
A new government led by Marouf al Bakhit decided last week to introduce a revised version of the 2011 budget rather than annex the extra social costs as a supplement to an earlier 2011 budget passed by its predecessor last year.
Abu Hammour said further fiscal consolidation was critical to ensure a robust upturn and maintain a target of cutting the budget deficit to 3 percent of gross domestic product by 2013.
"Our priority remains to balance the objectives of fiscal consolidation needed to preserve our strong macro economic fundamentals with supporting economic recovery," Abu Hammour added.
Abu Hammour said inflation was expected to reach between 5 to 5.5 percent this year from an earlier 4 percent projection with an increase in the oil import bill and commodities but should fall back to 4.5 percent next year.
The surge in global wheat prices has raised the cost of bread subsidies while higher oil prices have increased the subsidies on ordinary gasoline and cylinder gas, widely used for domestic cooking to help cushion the country's poor.
Although Jordan liberalised energy prices several years ago, it retained subsidies that have recently included a freeze on further gasoline hikes to head off any kind of unrest similar to riots in other Arab countries.
Total grain and fuel subsidies allocated in the budget rose to 340 million dinars, a rise of 135 million dinars.
Despite uncertainty from current unrest in the region, Abu Hammour said he was confident the outlook for the economy was "very positive" with more investment and tax incentives in the pipeline to attract higher foreign direct investment and regional capital inflows.
The government still maintained a 3.5 to 4 percent growth target his year, in line with IMF projections, seeing economic recovery gathering momentum, Abu Hammour said.